MARKET WATCH: Natural gas price rises; crude continues to slump

The front-month natural gas jumped 4.9% Dec. 8 in the New York market on forecasts for chilly weather across the eastern US and bullish expectations for the Dec. 9 storage report.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 9 -- The front-month natural gas jumped 4.9% Dec. 8 in the New York market on forecasts for chilly weather across the eastern US and bullish expectations for the Dec. 9 storage report.

Crude and petroleum product prices continued to fall with oil down 0.5% after the Energy Information Administration reported unexpected builds in both gasoline and distillate inventories.

EIA reported Dec. 9 the withdrawal of 89 bcf of natural gas from US underground storage in the week ended Dec. 3, exceeding the Wall Street consensus for an 86 bcf draw. That left more than 3.7 tcf of working gas in storage, down 57 bcf from the same period a year ago but 332 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories fell 3.8 million bbl to 355.9 million bbl the same week, exceeding Wall Street’s consensus for a 1.4 million bbl draw. Gasoline inventories increased 3.8 million bbl to 214 million bbl in the same period, counter to market expectations of a 300,000 bbl draw. Distillate fuel inventories gained 2.2 million bbl to 160.2 million bbl, compared with a consensus for a 900,000 bbl decline (OGJ Online. Dec. 8, 2010).

“Crude stocks decreased in line with seasonal trends, while potential interest rate hikes by the Chinese government decreased the outlook for oil demand from the world's largest energy consumer,” said analysts in the Houston office of Raymond James & Associates Inc. “Meanwhile, the possible extension of the Bush-era tax cuts left the broader [equity] market slightly higher with the Standard & Poor's 500 Index at a 2-year high, though the latest bull run appears to be sputtering again.” Energy stocks were mixed, they said.

Intraday crude prices in the New York market “dropped to $87.33/bbl after the EIA’s inventory report came out, but pared some of the losses on larger than expected declines in crude stockpiles,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The increase in product inventories was helped by higher refinery utilization, which increased by 4.9% to 87.5% vs. consensus of a 1% gain. In fact, it was the biggest weekly gain in refinery runs since the week ending Oct 3, 2008.”

In other news, El Paso Corp. said a portion of its Tennessee Gas Interstate pipeline ruptured 50 miles west of Houston. No injuries or significant damage was reported, and it is unknown how long the repair may take. The damaged line is one of three that feeds into a compressor station. Raymond James analysts said, “We do not expect this segment of the pipeline to be down for very long. Additionally, gas volumes are likely to be rerouted on other segments of the pipeline until operations are restored.”

Energy prices
The January contract for benchmark US light, sweet crudes dropped 41¢ to $88.28/bbl Dec. 8 on the New York Mercantile Exchange. The February contract lost 40¢ to $88.82/bbl. Subsequent monthly contracts were down but remained in contango through 2011.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 41¢ to $88.28/bbl. Heating oil for January delivery lost 0.95¢ to $2.46/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.84¢ to $2.30/gal.

The January natural gas contract rebounded, up 21.3¢ to $4.60/MMbtu, wiping out the previous session’s loss on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 2.5¢ to $4.46/MMbtu.

In London, the January IPE contract for North Sea Brent crude fell 62¢ to $90.77/bbl. Gas oil for December lost $9 to $757.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was down 41¢ to $87.46/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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